COLUMN-China Shenhua's Australian coal mine on troubled path: Russell

--Clyde Russell is a Reuters columnist. The views expressed are his own.--

By Clyde Russell

LAUNCESTON, Australia, July 14 (Reuters) - A planned Chinese-owned coal mine in Australia has become the latest example in a long line of mud-slinging trumping sensible debate.

While it makes for great headlines, there are few things less edifying than seeing politicians, business and community leaders flinging gratuitous insults at each other.

The stoush is over the Australian federal government’s approval of a A$1 billion ($746 million) coal mine being developed by China Shenhua Energy Co in the Liverpool Plains region of New South Wales state.

It would be something of an understatement to say the 10-million tonne a year project has been controversial, with its approval showing splits in the ruling Liberal National coalition, while prompting threats of civil disobedience from farmers and legal action from a variety of opponents.

The main issue is that the proposed mine, known as Watermark, is in prime agricultural land and there is concern that not only will it take up land that could be used for farming, but also that the mine will deplete or degrade the region’s underground water table.

Barnaby Joyce, the somewhat colourful federal agriculture minister, probably best known outside Australia for threatening to kill actor Johnny Depp’s pet dogs for illegally entering the country, is a vocal opponent of the mine.

He said last week that the approval of the mine, which is within his constituency, was a sign of the “world gone mad,” breaking ranks with Greg Hunt, the federal environment minister who granted the approval with what he termed strict conditions.

Joyce hails from the rural-based National Party, the junior partner in the ruling coalition with the Liberal Party of Prime Minister Tony Abbott.

So far the Liberal-National government has dismissed calls from the opposition Labor Party that Joyce should resign his portfolio if he doesn’t agree with the mine’s approval, but the fact that Joyce has been so vocal does call into question the unity of the coalition.

OPEN FOR BUSINESS?

Rural groups have also been vocal in denouncing the mine, with farmer and Caroona Coal Action Group head Tim Duddy telling the Australian Broadcasting Corporation that the project was “agricultural genocide”.

But Shenhua, China’s biggest coal miner, isn’t sitting idly by over criticism of the mine, which has already cost the state-controlled miner some $800 million.

Paul Jackson, Shenhua’s project manager for the mine, called Joyce a “xenophobic loony” who dislikes Chinese investment in Australia, according to a July 13 report in the Australian newspaper.

“The wider benefit of this mine is that you can engender a long-term relationship with China and they will want to take your agricultural goods from the other 1 million hectares of the Liverpool Plains,” Jackson told the newspaper.

Putting aside the “loony” jibe, and Jackson does come closer to some of the real issues of whether Australia is open for business, as Tony Abbott claims, or whether narrow interests will be able to trump the wider aims of the federal government and the business lobby.

The ongoing vociferous opposition to virtually every mining project, but especially coal developments in New South Wales and neighbouring Queensland state, may well cause foreign investors to think twice about doing business in Australia, and not just miners.

IS A NEW MINE NEEDED?

But the most relevant question on the Shenhua project is one that receives little attention in Australia, namely why bother building a mine at all given the low prices for coal, the poor prospect of a recovery and the slowing demand in China?

Chinese coal imports have slumped 37.5 percent in the first six months of the year from the same period in 2014, a trend that if continued will see the nation lose its position as the world’s top importer to India.

China has also courted controversy in Australia by rejecting cargoes, citing quality issues.

While Australian coal producers have maintained their product meets China’s new standards, the bottom line appears to be that China’s appetite for imported coal is waning and the hurdles to get cargoes cleared are increasing.

Shenhua also said in April it would cut its output by 50 to 60 million tonnes this year to help ease a supply glut, suggesting that it has plenty of domestic coal available and doesn’t really need to import from Australia.

While there are quality differences between what Shenhua produces domestically and what it plans to mine in Australia, the economics of the project and its necessity surely must be more questionable now than when Shenhua bought the licence to develop the Watermark mine six years ago.

In that time spot thermal coal at Australia’s Newcastle port has reached a record high of $136.30 a tonne in early 2011, before losing more than half its value to end at $60.08 on July 10.

The Watermark mine may be sunk by poor economics, but virulent opposition may make any decision to walk away easier. (Editing by Joseph Radford)